The Reserve Bank of Australia could cut the official cash rate further to offset the high value of the Australian dollar.
Assistant Governor Guy Debelle said on Tuesday the bank had been able to counter the effects of the high value of the Australian dollar on the economy by cutting the cash rate.
And, he said, the RBA could further cut the cash rate, which is currently at 3%, if the high dollar continued to have a negative impact.
"To date in Australia, we have been able to counter the effects of the higher Australian dollar with lower interest rates," he said in a speech to the University of Adelaide Business School.
"We still, obviously, retain scope to lower interest rates further, should the need arise, including to counterbalance the pressures of an elevated exchange rate."
AAP reports the RBA cut the rate by 1.75 percentage points between November 2011 and December 2012.
But Mr Debelle warned that cutting interest rates too far could also create problems for the economy - forcing up the price of assets and causing people to borrow more than they could afford.
"It can generate excess credit expansion or asset price inflation or imbalances elsewhere in the economy," he said.
"The current experience of Canada, Hong Kong and Switzerland is salient in this respect."
Mr Debelle also said the RBA's rate cuts over the past two years had less of an impact on mortgage rates than in the past, due to higher bank funding costs.
"Over the past five years, there has been quite a material change in a number of ... factors,'' he said, ''so that while changes in the cash rate are still the predominant determinant of changes in lending rates, the relationship between them is not one for one."
